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Consumer Warranty Law: 19.5.4 Damages for Breach of Common Law Warranties

To recover damages, a causal relation between the breach of a common law warranty and the damages must be shown, and the damages must be proved with a reasonable degree of certainty.98 Expectancy damages place the consumer in as good a position as if the contract had been performed,99 preserving the consumer’s bargain.

Consumer Warranty Law: 19.6.3 Parties Liable

Servicers are liable for their own faulty work and, under the doctrine of respondeat superior, for work done by their employees or by a subcontractor.141 A subcontractor is also liable for its own negligence.142 The manufacturer can be liable in negligence if the repair parts are defective. A franchisor may be liable for faulty repair by its franchisee if the franchisee is the franchisor’s agent.143

Consumer Warranty Law: 19.6.4 Proving Damages

Proof of damages in a negligent services case is generally the same as in any negligence action,144 except that, unlike negligence actions involving goods, courts may allow recovery of economic losses in negligence actions involving services.145 This subsection examines special proof issues related to negligent automobile repair, which should also be available by analogy in negligence claims involving other services.

Consumer Warranty Law: 19.7 Breach of Bailment Contract

Breach of a bailment contract is a potential claim when a repair shop damages property it agreed to repair. A bailment contract, express or implied, is created when personal property is delivered into the possession of another person in trust for a specific purpose, under an agreement that the property will eventually be returned to the owner.151 Delivery of property to a repair shop thus creates a bailment.152

Consumer Warranty Law: 19.8 UDAP and Fraud Claims

Unfair and deceptive acts and practices (UDAP) claims are especially relevant to service transactions. UDAP statutes apply equally to goods and services.157 A number of UDAP regulations and cases deal specifically with automobile repair, home improvement, and other services.158 UDAP statutes’ stronger remedies and deception and unfairness standards often match well with the more egregious home improvement and automobile repair practices.

Consumer Warranty Law: 19.9.1.2 Truth in Lending Rescission

Home improvement sales often result in the seller or lender gaining a security interest in the consumer’s home, either by taking a non-purchase money first or second mortgage in the home as part of the credit sale, or when a statutory lien in the home is created because of the seller’s improvement to the home. In either case, a right of rescission arises under the federal Truth in Lending Act (TILA).168 The creditor must give the consumer notice of this right of rescission in the form prescribed by TILA and Regulation Z.

Consumer Warranty Law: 19.9.1.3 FTC Cooling-Off Rule for Off-Premises Sales

The Federal Trade Commission (FTC) Cooling-Off Period Rule175 provides consumers with a right to cancel, within three business days of a sale, any contract not made at the seller’s principal place of business. Cancellation can be for any reason, and is not contingent on the nature of the contractor’s work. This rule is analyzed in detail in NCLC’s Federal Deception Law.176

Consumer Warranty Law: 19.9.1.5 Credit Repair Organization Statutes

Many states have adopted credit repair organization statutes that give consumers a three to five-day cancellation right.187 Although at least one court has disagreed,188 there is an argument that a home improvement contractor who arranges credit for the buyer meets the statutory definition of credit repair organization and must provide this right to cancel.

Consumer Warranty Law: 19.9.2 Failure to Complete Work; Completion Certificates

Even when work is not being performed or is being performed poorly, contractors and those enforcing home improvement loans may claim that the consumer is obligated to make payments on the work. But if the contract specifies that the first payment is due “on completion” or “X days after completion,” the consumer does not owe any payment until the work is completed.

Consumer Warranty Law: 19.9.5 State UDAP Statutes and Regulations

Misrepresentations and refusal to correct shoddy work violate the general prohibitions of deceptive or unfair practices under most state UDAP statutes.206 So do unjustified delays in performing promised work.207 In addition, Massachusetts, New Jersey, West Virginia, and Wisconsin have promulgated home improvement regulations under their state UDAP statutes.208

Consumer Warranty Law: 19.9.7.1 Introduction

A common problem with home improvement contracts is that a consumer has valid warranty, tort, UDAP, and even fraud claims against a judgment-proof contractor. Business entities doing home improvement contracting are frequently thinly capitalized, often are voluntarily or involuntarily dissolved as corporations, sometimes disappear or declare bankruptcy, and sometimes, after going insolvent, open up and begin doing business under a new name.

Consumer Warranty Law: Section 2-102. Scope; Certain Security and Other Transactions Excluded From This Article.

Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

Official Comment

Purposes of Changes and New Matter: To make it clear that:

Consumer Warranty Law: Section 2-103. Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires

(a) “Buyer” means a person who buys or contracts to buy goods.

(b) “Good faith” in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.4

(c) “Receipt” of goods means taking physical possession of them.

Consumer Warranty Law: Section 2-104. Definitions: “Merchant”; “Between Merchants”; “Financing Agency”.

(1) “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.

* * *

Official Comment

Purposes:

Consumer Warranty Law: Section 2-105. Definitions: Transferability; “Goods”; “Future” Goods; “Lot”; “Commercial Unit”.

(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107).